How the pandemic has impacted the reinsurance industry


C&C Reinsurance

city ​​& commerce Niraz Buhari

Niraz Buhari, CEO of C&C Insurance Group, said the pandemic had caused unforeseen disruptions to the global economy due to lockdowns

The technology has become even more relevant in the post-pandemic business world with the addition of various emerging risks that will unlock new opportunities in the risk management industry.

—Mohammed Niraz Buhari

LONDON, LONDON, UK, Jan. 28, 2022 / — Until the onset of the coronavirus pandemic, property and casualty reinsurers focused primarily on models that would make them resilient to natural and man-made disasters. Climate change was a major concern. However, the pandemic overtook her as the main concern soon after it started.

Niraz Buhari the CEO of C&C Insurance Group said the pandemic had caused unforeseen disruptions to the global economy due to shutdowns and generated increased pandemic-related coverage. As a result, COVID-19 has highlighted the need for new protections, threatened reserves, and demonstrated the need for a more sustainable cost structure.

It is positioned to accelerate the transition to risk advisory and loss prevention services, focusing on new and emerging risk classes and usage-based products. Reinsurance rates have increased and experts expect this trend to continue.

Decline in global trade and its impact on insurance demand

The decline in global trade has potentially led to lower demand for insurance in some cases. This loss of business can affect the budget and profitability of insurers linked to international trade. Some notable changes in the way insurers have had to adjust their businesses can be seen below:

Around the world, we have seen changes in the calculation of liquidity constraints, capital calculations, balance sheets and scenario tests.
Governments have relieved insurers in countries like the UK, Mauritius and Kenya to file statutory declarations to reduce the effect of COVID-19 related curfews and travel restrictions.

In some cases, insurers may have seen a reduction in claims in the areas of theft and accidents during closures and travel restrictions.

Some insurers have refunded auto policy premiums and offered policyholder discounts on renewals.
New risks and disputes over contract details.

C&C Group CEO Niraz Buhari confirmed that P&C reinsurers face risks in both contracts that do not explicitly mention but involve pandemic risk exposure components and agreements that explicitly involve pandemics.

The first occurs because no one could anticipate the risks of a pandemic. The latter has happened repeatedly through event cancellations due to the pandemic. In addition to event cancellations, material risks included in contracts related to COVID-19 include surety, trade credit, and political risk. Insurers most likely signed such contracts due to experienced and anticipated disruptions in supply chains and trade.

Other unforeseen reinsurance risks resulting from the pandemic.

As mentioned earlier, COVID-19 has caused lockdowns and disruptions to businesses, trade and supply chains across the world. This phenomenon has caused an increase in unemployment and a slowdown in economic growth. These unforeseen changes created a domino effect affecting critical areas such as mortgage margins of protection.

For reinsurers, exposure to positive pandemic exposures has been low primarily due to the large potential losses involved.
Silent exposures, which have not been explicitly stipulated in the contracts, have greater exposure because they affect several rows simultaneously.

Niraz Buhari said the pandemic has brought silent exposure through profit loss limits, business interruption coverage limits and contingent business interruption.

Some reinsurers have excluded pandemics from their non-life reinsurance contracts and offered pandemic cover explicitly or separately in cases to avoid problems.

Legal challenges and customer disputes

As a result of the pandemic, problems have arisen with property and casualty insurance companies signing silent contracts on pandemic risk. Some property and casualty insurers have lost lawsuits over disagreements between customers over whether business interruption limits include pandemics.

Different arguments have been generated on whether the pandemic is affecting the disruption of real estate business by denying access to property, mandatory government closures, or the economic impact of the pandemic. Debates also took place on the wording of the contracts.

The United States, for example, is supposed to have a good number of proprietary policies and manuscripts that exclude business interruptions. Around the world, some manuscripts and guidelines are quite clear, others ambiguous, and there are many variations between the two. Contracts should be written clearly on the nature, duration and notice dates to avoid misunderstandings and legal disputes.

The coronavirus pandemic has led to reinsurers in the UK, mainland Europe, Canada and other parts of the world being exposed to more policies than they thought.

Over the past 100 years, there have been about ten pandemics/epidemics. It is reasonable to think that insurers can build models around previous pandemics. However, we do not yet have a working model for catastrophe risk reinsurance. Public-private partnerships are needed to deal with the financial ramifications of pandemics and better manage the rather complex landscape of risk identification, risk mitigation/reduction and financing and risk transfer according to Mohammed Niraz Buhari.

Reinsurance industry experts believe that reinsurance markets have been paid disproportionately more than the exposures they have taken on in the era of COVID-19, a situation they consider unsustainable. Thus, pragmatic steps must be taken to develop sustainable models.

Post-COVID-19 Market Outlook

Market demand for re/insurance COVID-19 and future pandemics has increased. However, markets are hesitant to offer exposure because they cannot predict government response or quantum loss. This situation makes it difficult to predict the profitability of such exposures. Additionally, some reports have explicitly excluded non-life reinsurance, such as Insurance-Linked Securities (ILS). Thus, it is likely that a pandemic-specific market will emerge that would absorb the excluded risks. However, the feasibility of this depends on the availability of reinsurance. Otherwise, markets may decide to remain silent on non-excluded exposures. In this case, reinsurers would have to create collision reinsurance cover – to cover insurance on several legs in the event of a systematic loss – for their ceding companies.
Many stakeholders have indicated that insuring pandemic risk may be too risky. Others believe that reinsurers can – remotely – protect ceding companies against the risk of a pandemic, but only when the probability of occurrence is low. Thus, contracts may include a small threshold, such as the imposition of government shutdowns or notable deaths due to the pandemic.

Due to the difficulty in predicting the magnitude of claims, these products are primarily index-based no-compensation, with limited compensation. Otherwise, insurers who cannot insure these losses can exclude them. In such cases, government interventions that encourage commercial reinsurance while creating government pools

Ian Brown
UK Insurance News
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